Boustead Heavy Industries Corporation

HOLD

Recommendation:
Stock Code: 8133

Bloomberg: BHIC MK

Price: MYR4.30

Board: Main

12-Month Target Price: MYR4.75

Pr i ce

Date: August 13, 2008

30 Day Movi ng Aver age

Price ( MYR)
8.00

Sector: Industrial Products

7.00

GICS: Industrials/Construction & Farm Machinery & Heavy

6.00
5.00

Trucks

4.00

Market Value - Total: MYR1,068.4 mln

3.00
2.00

Summary: Boustead Heavy Industries Corporation (BHIC),

1.00

formerly known as PSC Industries (PSCI), is an investment

holding and property holding company with subsidiaries
engaged in ship building, ship repair, construction and
trading. BHIC completed a comprehensive restructuring
scheme in early August 2007 which removed it from PN17
classification.

Vol ume

Vol ('000)
40,000
30,000
20,000
10,000
0

Aug 05 Oct 05 Dec 05 Mar 06 May 06 Jul 06 Sep 06 Nov 06 Feb 07 Apr 07 Jun 07 Aug 07 Nov 07 Jan 08 Mar 08 May 08 Jul 08

Analyst: Su Peng Ng

Results Review & Earnings Outlook

Recommendation & Investment Risks

BHICs 1H08 results came in broadly in line with our expectations.

1H08 net profit of MYR65.6 mln accounted for 46.6% of our full year
forecast.

We lower our recommendation on BHIC to a Hold (from Buy) with a

lower 12-month target price of MYR4.75 (from MYR6.00) due to a
lower target PER multiple.

1Q08 revenue improved by 10% QoQ, boosted by higher contribution

by the groups shipbuilding and repair division which turned in revenue
growth of 8% QoQ. A 26% QoQ growth in operating profit at the
division was achieved on the back of a 3.5ppt improvement in
operating margin to 24.3%. We believe higher contribution from
repairs and maintenance helped to prop up margins as repairs and
maintenance normally carry higher profit margins. In addition, BHICs
20.8% associate, Boustead Naval Shipyard (BNS) improved its profit
contribution by 15% QoQ to MYR12.8 mln.

We continue to value BHIC utilizing PER-based relative valuation

methodology but reduce our target PER multiple to 8.5x (from 10.5x)
against our estimated BHICs 2008 EPS and BVPS. The target multiple
is benchmarked to BHICs listed regional and local peer average PER
valuation ranging from 6.5x-13.5x (from 8.5x to 16x). Our lower target
multiple is due to lower peer average.

We remain positive on BHIC given its large orderbook of around

MYR700 mln and the orderbook for its 20.8% associate BNS, which
amounts to about MYR2.7 bln. However, with the prospects of a
slowing global economy coupled with high raw material costs, this may
affect the future orders for ships and could put pressure on the groups
profit margins. In addition investor sentiment on BHIC is likely to be
muted in light of the gloomier global outlook.

Risks to our recommendation and target price include a delay in the

delivery of OPVs, cancellation of existing contracts and higher-thanexpected operating costs.

As BHIC was still bogged down by its restructuring efforts during 1H07
YoY comparisons are not be meaningful.

We have made some minor adjustments to our model resulting in our

2008 and 2009 net earnings forecast being revised to MYR139.4 mln
(from MYR140.8 mln) and MYR153.4 mln (from MYR156.1 mln),
respectively.

Key Stock Statistics

Per Share Data

FY Dec.

2007

2008E

FY Dec.

2005

2006

2007

2008E

Reported EPS (sen)

195.4

56.1

Book Value (MYR)

-2.43

-2.82

0.84

1.40

PER (x)

2.2

7.7

Cash Flow (sen)

-11.3

-14.2

69.9

0.0

Dividend/Share (sen)

1.5

1.5

Reported Earnings (sen)

-177.8

-31.4

195.4

56.1

NTA/Share (MYR)

0.84

1.40

Dividend (sen)

0.0

0.0

1.5

1.5

Book Value/Share (MYR)

0.84

1.40

Payout Ratio (%)

0.0

0.0

4.0

2.7

No. of Outstanding Shares (mln)

52-week Share Price Range (MYR)

248.5

PER (x)

NM

NM

2.2

7.7

2.40 - 7.60

P/Cash Flow (x)

NM

NM

6.2

NM

P/Book Value (x)

NM

NM

5.1

3.1

Dividend Yield (%)

0.0

0.0

0.3

0.3

35.4

10.2

-65.7

50.1

NM

NM

0.0

0.0

Major Shareholders:
Boustead Holdings
* Stock deemed Shariah compliant by the Securities Commission

65.0

ROE (%)
Net Gearing (%)

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
Redistribution or reproduction is prohibited without written permission. Copyright 2008 The McGraw-Hill Companies, Inc.

Page 1 of 4

Boustead Heavy Industries Corporation

HOLD

Recommendation:
Stock Code: 8133

Bloomberg: BHIC MK

Price: MYR4.30

12-Month Target Price: MYR4.75

Date: August 13, 2008

Quarterly Performance
FY Dec. / MYR mln

2Q08

2Q07

Reported Revenue

111.4

27.5

>100

25.1

1.8

>100

Reported Operating Profit

% Change

Depreciation & Amortization

NA

NA

NA

Net Interest Income / (Expense)

0.4

-0.1

NM

Reported Pre-tax Profit

38.3

1.7

>100

Reported Net Profit

34.4

1.5

>100

Reported Operating Margin (%)

22.5

6.6

Reported Pre-tax Margin (%)

34.4

6.2

Reported Net Margin (%)

30.8

5.5

Source: Company data

Profit & Loss

FY Dec. / MYR mln

2006

2007

2008E

2009E

Reported Revenue

80.5

117.2

439.5

523.4

Reported Operating Profit

-2.3

25.0

79.2

90.0

Depreciation & Amortization

-0.1

-7.0

-6.0

-5.0

Net Interest Income / (Expense)

-40.1

0.5

-3.0

-4.0

Reported Pre-tax Profit

-89.9

474.9

139.4

153.4

Effective Tax Rate (%)

Reported Net Profit

NM

2.4

0.0

0.0

-94.2

485.5

139.4

153.4

Reported Operating Margin (%)

-2.9

21.3

18.0

17.2

Reported Pre-tax Margin (%)

>-100

>100

31.7

29.3

Reported Net Margin (%)

>-100

>100

31.7

29.3

Source: Company data, S&P Equity Research

All required disclosures and analyst certification appear on the last two pages of this report. Additional information is available upon request.
Redistribution or reproduction is prohibited without written permission. Copyright 2008 The McGraw-Hill Companies, Inc.

Page 2 of 4

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Emas Index respectively, over the coming 12 months and share price is not
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Page 3 of 4

Required Disclosures
Recommendation and Target Price History
Date
New
6-May-08
29-Feb-08
31-Oct-07
30-Oct-07
21-Aug-07
10-Aug-07
4-Jun-07
27-Feb-07
4-Oct-06
21-Aug-06
3-Mar-06

Recommendation
Hold
Buy
Buy
Buy
Buy
Hold
Strong Buy
Sell
Sell
Strong Sell
Strong Sell
Strong Sell

P rice (M YR)

Target Price
4.75
6.00
7.30
7.20
7.00
2.70
2.40
2.25
2.50
1.15
1.00
1.50

8.0

7.0

6.0

5.0

4.0

3.0

2.0

1.0
Aug 05

Nov 05

Feb 06

May 06

Aug 06

Nov 06

Redistribution or reproduction is prohibited without written permission. Copyright 2008 The McGraw-Hill Companies, Inc.

Feb 07

May 07

Aug 07

Nov 07

Feb 08

May 08

Aug 08

Page 4 of 4